What is bitcoin (BTC)
You have heard of bitcoins. They are a form of cryptocurrency.
For the starters, a cryptocurrency is a medium of exchange just like a physical currency such as Dollars, Pounds and Euros. However, these currencies are designed specifically for digital information exchange through complex algorithms, based on the principles of cryptography. These complex algorithms are used for creation of new coins and secure transactions. Bitcoin was the first such currency created in 2009 by Satoshi Nakamoto (most probably a pseudonym). Bitcoin uses SHA-256 hash functions which were designed by NSA.
With time, the cryptocurrency market boomed to create hundreds of virtual currencies commonly known as Altcoins or Bitcoin alternatives.
Cryptocurrency Market View
After 2009, the cryptocurrency market has become huge and at present there are 557 such coins as per the data from CoinMarketCap. These currencies have a market capitalization of $3.5 billion as of current date. Bitcoin alone has a market capitalization of $3 billion. Clearly bitcoin commands over 85% of the cryptocurrency market. At present bitcoin is trading at $218.68 with an available circulation of over 14 million coins in the market.
Where is the market for Bitcoin?
Bitcoin is treated as a legal currency in most countries apart from Iceland and Vietnam. China has also banned financial institutions from trading bitcoins and Russia, made it illegal to purchase goods with any currency other than Russian rubles. Bitcoin can be exchanged for real money in any currency that is permissible by the respective legal regimes of the particular countries. It is also a favorite among cyber criminals as an exchange medium due to its anonymity. However, crackdown on such cyber gangs by the security agencies and the volatility of bitcoin and continuously falling value is now forcing the cyber criminals to use other forms of cash.
Normally, these cyber criminals would encrypt the critical data through malicious programs called ransomware and blackmail victims to pay a ransom if they want their data decrypted. Mostly, they would use third party associates who are not a member of the gang as a payment middle man to take payments from the victims into legitimate bank accounts. In turn they get up to 20% cut from the ransom.
Short Term Trends
However, the market for bitcoin is losing its sheen lately. On its top, the bitcoin was trading at $1216.73 per BTC on 17 November 2013. Currently, its value reached $218.68 per BTC, a whopping drop of 82%. It is estimated that 3600 bitcoins are mined per day, globally. At current prices, over 1 million bitcoins would have to be purchased every day to keep it at current price. Not getting enough users of this currency is the primary reason for the fall. It takes a lot of time and steady internet speed to mine bitcoins. Most active users are facing difficulties in mining quick coins. There has been lesser merchant adaption. Larger companies are risk averse and they convert most of their coins to USD shortly after purchasing. Till the time companies see bitcoin as a reliable source of value addition and observe substantial financial upside, this downward pressure will continue.
Long Term View
Long term view of bitcoin looks healthy. Most of the countries are faming regulations around use of bitcoins as a reliable mode of exchange. Multibillion dollar enterprises are expanding their horizon into the cryptocurrency domain. Once the regulatory environment is established, financial institutions will look towards speedy adoption of bitcoin. Venture capital (VC) market and the Private equity (PE) market are working on the foundations of such payment networks. More and more virtual wallets are being introduced in the market now. It looks that in the future, bitcoin and altcoins will have a good time as preferred mode of exchange among financial institutions. Efforts are being made to create decentralized peer-to-peer marketplaces, decentralized gambling applications.
Owing to the current short term perspective of bitcoin, it is fast losing its charm for cyber criminals and this can be seen as a welcome event for the establishment and reliability of bitcoin as a mainstream virtual currency.